BofA Securities Keeps Software Top Picks Despite AI Worries

Of 12 software companies in BofA Securities’ coverage that have reported for Q3, 10 beat revenue expectations and all four reporting profit beat expectations; most raised guidance. BofA reiterated its top picks, while noting fragile sector sentiment and no clear signs of AI-driven disintermediation or material macro impact from political uncertainty in France or the Middle East. Recent reactions were mixed: SAP fell nearly 2% in premarket trading after weak Q4 signals from ServiceNow and Fortinet, while Planisware dropped 7.3% despite revenue rising 15.6% year on year to €57.4 million and maintaining its 2026 targets.

Analysis

The key signal is not the beat rate; it is how quickly investors are discounting the next quarter. Sympathy weakness in SAP after ServiceNow and Fortinet shows that current-period delivery may not protect software multiples when forward growth, backlog, or segment momentum disappoints. That makes guidance quality and recurring-demand indicators more important than headline revenue beats through the remaining reports. The near-term setup is therefore selective, not a sector-wide re-rating.

For the next 1–3 months, SAP and the other guidance raisers could recover if their own forward indicators confirm the upgrades; broad spillover from isolated disappointments would create an entry opportunity rather than establish an AI-disintermediation thesis. The reported lack of evidence for AI-driven displacement is not proof that monetization or competitive risk is resolved. Over 6–18 months, AI product adoption and customer retention matter more than launch announcements: Planisware’s planned Prisma commercialization remains a future catalyst, while unchanged targets after a beat illustrate the risk that investors demand upgrades, not merely execution.

The contrarian angle is that fragile sentiment may over-penalize companies with confirmed guidance, but the consensus may also be underestimating how much forward commentary can outweigh current results. Adyen’s margin trade-off highlights a separate risk: demand capture through investment can weaken near-term profitability. Avoid extrapolating one company’s read-through to the entire sector.

Key Decisions for Investors

• Do not chase a broad software basket on the beat count alone. Over the coming reports, prioritize companies that pair revenue delivery with raised forward guidance and improving recurring-revenue or backlog indicators; cut exposure if those indicators weaken.
• Consider a tactical SAP-versus-ServiceNow relative-value position only after price action stabilizes and the next company-specific updates confirm the divergence. The thesis is that SAP’s guidance support should outperform if ServiceNow’s forward-growth concerns persist; exit if SAP guidance or demand indicators weaken, or ServiceNow demonstrates a clear backlog and growth re-acceleration. No valuation or price data is provided to set entry levels.
• Treat Planisware as a watch rather than an immediate long: unchanged targets despite a reported beat suggest execution alone may not catalyze a rerating. Reassess on target upgrades or verifiable Prisma customer adoption ahead of its planned commercial launch; thesis weakens if growth or margin targets are cut.
• Keep Adyen separate from the software read-through. Monitor whether acquisition investment translates into durable demand and whether margin guidance stabilizes; sustained margin pressure without corresponding evidence of growth conversion would argue against adding exposure.